Libyan Economic Prospects Strong Following Civil War
As Libya prepares to form a new government in November 2011 following its nine-month civil conflict and the end of 42 years under the rule of Muammar Gaddafi, there remain both challenges and opportunities for the war-torn nation. Libya’s wealth of natural resources suggests considerable room for rapid economic growth, especially for businesses in the hydrocarbons sector. However, security concerns are potential deterrents to foreign investors.
- The Libyan civil war, which began in February 2011, concluded with the death of former leader of 42 years Muammar Gaddafi in October 2011. This has opened the country to foreign trade, investment and international cooperation, with the removal of economic sanctions paving the way to the development of the domestic consumer market;
- Libya’s large oil, gold and natural gas reserves, as well as its low base of development, offer the strongest economic growth potential of all the Arab Spring states. However, the unstable nature of a post-revolutionary environment and high input costs for rebuilding damaged infrastructure remain concerns. In 2010, Libya held foreign exchange reserves of US$96.8 billion.
Rich natural resources can underpin business expansion and consumer market growth, but foreign expertise and security guarantees will be necessary:
- Underpinning Libya’s economic potential is oil wealth, with its proven oil reserves of 46.4 billion barrels in 2010, eighth largest worldwide. Underinvestment and economic sanctions have limited extraction and a number of oil and gas fields remain unexplored, leaving huge potential for investors in the extraction and exploration of hydrocarbons;
Greatest Proven Oil Reserves by Country: 2010
Source: Amoco, BP Statistical Review of World Energy
- However, with oil accounting for around 95.0% of export earnings in 2010 according to the IMF, the economy needs diversifying to avoid vulnerability to global market fluctuations. Considerable investment will be necessary to restore production, rebuild facilities and ensure the return of much-needed foreign labour;
- The Libyan population stood at 6.4 million in 2010. Taking into account the country’s oil wealth and large gold reserves of 4.6 million troy ounces in 2010, on a per capita basis these resources should aid the economic aspirations of Libyans and drive the development of the consumer market. With many Western products not easily accessible during the Gaddafi regime, demand for imported consumer goods is likely to be strong;
- Despite a small population and the country’s large size presenting logistical challenges, 77.9% of Libya’s populace were urban in 2010 and easy to reach. Libyans also held the second-largest per capita consumer expenditure among major economies in Africa in 2010, at US$3,800;
Libya’s Per Capita Consumer Expenditure and Real GDP Growth: 2005-2010
US$ per capita / Real GDP Growth %
- The tourism industry, non-existent during the Gaddafi regime, holds strong potential with pleasant year-round weather, a long Mediterranean coastline, Roman historical heritage and close proximity to Europe’s main airports;
- Nonetheless, security is a major obstacle to economic development. Rival factions continue to carry out revenge killings and militias roam the streets. Young men will have to be disarmed and offered long-term employment incentives. While adult literacy rates are high at 89.3% of the population aged 15+ in 2010, the skills are not applicable to the private sector as Libya has emerged from state dominance with little private sector activity.
- The Libyan National Transitional Council (NTC) selected Abdurrahim El-Keib as prime minister on 1st November 2011, who is now tasked with forming a new government and launching unification and reconstruction efforts. US$23.0 billion in the central bank is expected to cover costs of government up to Q2 2012, while there is an estimated US$160 billion in frozen foreign assets, according to the NTC;
- The labour market and the fluidity of economic transition will depend on the return of long-term Libyan exiles and foreign labour, which hold the political and technological expertise. According to the IMF, oil production is projected to return to its pre-conflict levels in the second half of 2012;
- Libya will have to avoid the example of Iraq, another oil-rich nation that has been beset by corruption and violence. Libya’s major challenges include averting an over-reliance on oil revenues while generating employment in labour-intensive industries for the country’s young population. The median age of the population in 2010 was only 25.9 years.